A New, Progressive Economic Strategy, Part 1

Looking out onto the smoky, endless skyline of Seoul, Korea, I think about our two nations’ similar economic paths, from abject underdevelopment to world-class modernization and wealth. In the 19th century, there was one place in the world that managed to move all the way up from low-income to high-income, and that was the United States. From 1870 to 1970, another society, Japan, managed the same achievement. Now, one other society will make the same great leap from 1960 to 2030 or so, and it will be Korea. If you doubt it, consider that since 1960, the real per capita income of Koreans has grown 37-fold, and the country’s real GDP has expanded up 50-times. They’ve managed it in much the same way we did – making huge, sustained investments in education and infrastructure; sustaining a voracious work ethic animated by meaningful jobs open to anyone able to perform them; adopting astute policies that support native businesses but also expose them to foreign competition from more advanced rivals; and setting global ambitions for the nation’s economy. 

Yet, even these achievements by Korea in this period and by ourselves a while ago don’t guarantee future success. Korean policymakers, businesses and workers certainly all face difficult challenges. But our interest here lies in our own, future path. President Obama and Congress, beset by a series of crises, have found themselves playing the role of a fire brigade. To his genuine credit, the President reached past the fires around him to drive basic health care reforms, a remarkable exercise of presidential will even if we’re unsure of their real costs and benefits. Alas, the achievement represents only a modest piece of a larger economic strategy still waiting to be articulated and carried out, if we are to hope for a better economic future than the one being deeded to most Americans by the mistakes and dismal neglect of the preceding administration.

This is the first of three essays in which we will lay out a new economic strategy for the next decade. The last time such large ambitions were seriously attempted, they it came from conservatives led by Ronald Reagan, who also tried to surmount the emergencies of his time with broader reforms. Perhaps less than half of that attempt proved to be sound, and more than half clearly was not; but they all left long legacies. The big task for Mr. Obama and progressives today is to think and act as big as Reagan, and get at least three-quarters of it right this time.

Today, we will lay out the three basic parts of that task and begin to think through the first of them. These three economic challenges that demand basic reform are: 1) Restore real prospects for economic progress for average working Americans; 2) reclaim real, structural soundness for the government’s finances in the face of the serious social challenges we will face over the next decade; and 3) secure America’s leading role in the global economy.

The first part of this task is the most urgent politically, although not more so economically than the others. In fact, if we do not successfully address the second and third parts, the progress we make with the first will not be sustained. The essence of the first challenge is to ensure that average Americans can lead lives of economic progress and dignity. That aspiration, in turn, rests most fundamentally on restoring strong and dynamic job creation, so that everyone who wants to can not only find work, but also move up periodically to more demanding, better-paid jobs. A labor market that works this way – the kind we had in the 1950s, 1960s, and in the 1990s for a brief while – can deliver the basic elements of the American dream  through meaningful work that provides real opportunities for rising incomes and upward mobility.

Every piece of this goal is in peril today. For a decade, job creation has slowed sharply, income gains for most people have stalled, and upward mobility has become the privilege limited to the top 20 percent of Americans. We all can see the growing gap that has opened up between the skills of most Americans and the demands of most new, well-paying jobs with futures. In one way or another, those jobs all now involve advanced technologies, which themselves also displace other jobs for millions of people. Finally, we can feel the pressures that squeeze so many jobs and wages, as businesses dealing with the intense competition created by globalization also face fast-rising costs, especially for health care, energy, and pensions. 

These forces gripping American jobs and wages are all very complex, and there’s no single magic bullet to vanquish them. So, we have to take them on piece by piece. For example, most new jobs come from relatively young businesses that are expanding quickly. We can ease some of the costs of creating those jobs by reducing the employer’s payroll taxes on net, new employees and by assuming part of their health-care costs – approaches actually in place already in limited forms, in the new health care reforms and the latest jobs bill. Now, for some real innovation, let’s also require that in exchange, these businesses become staging grounds for enhancing the skills of the new workers they hire. Half of what they save on payroll taxes and health care would go for onsite training or vouchers for ongoing outside instruction, especially in the information technologies that pervade most workplaces. For everybody else, new grants to community colleges could cover the cost of keeping their computer labs open and staffed on evenings and weekends, for anyone to come by and receive free training in those technologies.

These reforms, however, won’t ease the cost pressures squeezing jobs and wages in most companies. So this plan also needs additional steps to reduce the fast-rising cost burdens on business from health care, energy and pensions. One sensible step that may seem radical by today’s cramped standards would be to lighten those pension and health care burdens by (the radical part) expanding Social Security and Medicare. Start by raising the benefits of those who continue to work beyond ages 62, 65 and 70, which will directly reduce their employers’ pension liabilities. Follow it up by the government assuming the obligations of many large companies for part of their retirees’ health care. It might amount to federally-financed “medigap,” a social provision which eventually progressives should want to extend to everyone.   

It shouldn’t surprise anyone that addressing the profound problems most Americans now face with jobs and wages won’t be cheap. Next week, we will lay out the second part of our progressive economic strategy, on how best to restore sound financing for the national government. Progressives did that in the 1990s, with some help from conservatives, and they can do it again. This time, however, we also have to tackle the looming costs of two structural challenges to our future fiscal state, namely, health care for the retiring boomers and climate change. Then, in part three, we will turn to America’s ongoing leadership in the global economy, especially with regard to our strength as the source of innovation worldwide and our central place in the global financial system.